Yuan Love

With the headlines full of issues involving international law (including the just announced federal criminal complaint filed against Manssor Arbabsiar and Gholam Shakuri alleging them to be co-conspirators, inter alia, in a plan to assassinate the Saudi ambassador to the United States on U.S. soil promulgated on behalf of elements of the Iranian government), it was difficult for me to pick a topic for this week’s blog post. Nevertheless, I could not resist an opportunity to discuss the Yuan.

I do not want to talk about the specifics of the U.S. Chinese Currency bill, and motivations underlying its passing. Clearly, undervalued Chinese exports make U.S. products less competitive in the domestic and global market place, which explains why the U.S. Senate passed a bill yesterday seeking to essentially punish the Chinese for its undervalued currency by increasing tariffs on Chinese exports. Instead, I want to talk about the WTO.

Ideally, should not the WTO be addressing issues of currency manipulation? Isn’t currency manipulation in essence a (constructive) subsidy, which the WTO explicitly doesn’t allow assuming certain requirements are met (you can challenge me on this one)? If one country artificially undervalues its currency, it will obviously gain an unfair advantage in the global marketplace, and is not the WTO’s job to prevent unfair trade practices? If you couldn’t guess, I believe it is the WTO’s job to tackle these concerns. And, I believe the U.S. should never have had to be put in the position it’s in now where it needs to take unilateral measures to deal with Chinese currency manipulation; it should have been able to rely on the WTO to have resolved these issues long ago. I cannot help but be frustrated given the current state of U.S. and Chinese trade, and consequent lack of mediation by the WTO.

What China has been doing in artificially undervaluing its currency is unfair, and violates the spirit of the WTO. Nevertheless, it will be interesting to see what China does in response to this bill, and it will be even more interesting to see what the WTO does in response. If the bill passes, and the U.S. imposes tariffs on China for undervalued currency, will the WTO hold that such tariffs  are illegal? If it does, I know some people that loudly cry foul…


Here is an interesting report concerning the legality of currency manipulation within the scope of the WTO and IMF, if you are interested:



And, for more Yuan puns, go here:


One comment

  1. It wouldn’t be very much fun if I agreed with you, now would it? Part One of the WTO Agreement on Subsidies and Countervailing Measures (“SCM Agreement”) provides a very specific and narrow definition of the term, “subsidy,” and an explanation of the specificity requirement. The SCM Agreement defines the term subsidy as “a financial contribution by a government or any public body within the territory of a Member” which confers a benefit (https://www.wto.org/english/docs_e/legal_e/24-scm.pdf).

    The SCM Agreement lists certain measures that represent a financial contribution: grants, loans, equity infusion, and loan guarantees; fiscal incentives such as tax credits; government purchase or provision of goods or services; affirmative government payments (Id.). Artificially undervaluing currency does not fit within this list, nor is it even of the same kind and nature as those measures listed. Since artificially undervaluing currency is not a financial contribution, I disagree that currency manipulation is a subsidy. Even if currency manipulation (i.e., government intervention that distorts competition) should be considered a “constructive subsidy,” only a measure which is a specific subsidy within the meaning of Part One is subject to potential countervailing measures by the WTO (Id., at Part Five).

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